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Nearly 10,000 micro, small and medium enterprises (MSMEs) shuttered from 2019 to 2022, according to a parliamentary response on July 25.

According to data from the erstwhile Udyog Aadhaar and Udyam, 9,667 MSMEs closed since 2019, Bhanu Pratap Singh Verma, the minister of state for MSMEs said in a written response to a lawmaker’s question in the upper house of parliament.

ALSO READ: Govt making necessary policy changes to encourage MSME sector: PM Modi

This compares with 400 MSMEs that closed during 2016-2019, the minister added.

India’s pandemic-hit economy is recovering but the informal sector, which has come under significant financial stress and has lost market share to larger firms, is lagging.

The office of Delhi's lieutenant governor on Sunday said that the state government's data on excise revenue collection is wrong. The Delhi government said that its excise revenue increased by Rs 1,484 crore in the Q1FY23, owing to the implementation of the revised excise policy, according to a report in Times of India.

This came two days after the LG's office recommended a probe by the Central Bureau of Investigation (CBI) into the Delhi government’s excise policy.

The excise revenue of the Delhi government in the first quarter of the current fiscal year remained flat compared to 2019-20 despite a steep rise in whiskey and wine sales, argued the central government's sources. According to the report, data from FY21 and FY22 were not taken in comparison due to the Covid-19 lockdown and the second wave of coronavirus, respectively.

While wine sales in Delhi are estimated to have risen 87 per cent, whiskey and beer sales witnessed an increase of 59.5 per cent and 5.5 per cent, respectively, the Centre's sources told Times of India as they added that the mismatch is "stark and inexplicable."

“Of the Rs 1,484 crore being touted as excise revenue, Rs 980 crore are refundable security deposits of the vendor licensees. In fact, in the last five financial years, 2017-18 to 2021-22, the revenue earned by the Delhi government through liquor sale has come down by a staggering Rs 567.98 crores,” The Hindustan Times reported, quoting an official.

The Delhi government last year in November had lowered the VAT on liquor from 25 per cent to 1 per cent. However, now, the regime has been changed and excise and VAT were merged for the calculation of reserve licence fee.

After factoring in the numbers for the last fiscal year including the security deposit, the licence fee component for liquor may add up to nearly Rs 4,500 crore, and along with VAT, the collections are estimated at Rs 5,741 crore, sources told TOI. This collection is nearly Rs 568 crore lower than the collections five years ago as in FY18, it was pegged at Rs 6,309 crore.

The central government's sources told TOI that the fall in revenue is difficult to explain.

India would be lucky if its Gross Domestic Product (GDP) grows by 6 percent in the financial year 2022-23, according to Pronab Sen, head of the Standing Committee on Economic Statistics.

Sen, formerly the chief statistician of India, said while the Reserve Bank of India (RBI) may not go “overboard” with interest rate hikes, the elevated uncertainty levels could damage growth.

“All of these 7 percent-plus growth estimates that are floating around, you really have to rubbish all of that. We would be lucky if we do 6 percent this fiscal,” Sen told Moneycontrol in an interview in Delhi.

Last week, Nomura cut its growth forecast for India for 2023 to 4.7 percent from 5.4 percent.

According to Sen, India’s potential growth rate has fallen to around 5.5 percent.

Fiscal support needed

In a scenario where the monetary authority is applying brakes to curb red hot inflation, Sen feels the government must ensure fiscal support to make sure the economy does not tip over into a slowdown.

“Once you start having monetary tightening, the dangers of growth retraction go up. You don’t want growth to go down too fast because if it does, there is always a tipping point after which the contractions start getting a momentum of its own and it just gets worse after that,” Sen said.

“It becomes incumbent on the fiscal policy to make sure that the economy doesn’t go over that tipping point.”

The RBI has raised the policy repo rate by 90 basis points so far in FY23 to 4.9 percent to combat elevated inflation levels, with another rate hike expected next month in August.

One basis point is one-hundredth of a percentage point.

The latest Consumer Price Index (CPI) inflation print for June, at 7.01 percent, met market expectations. However, it was the 33rd month in a row that it came in above the medium-term target of 4 percent.

Sen expects the repo rate to be raised to as much as 5.5-6 percent from 4.9 percent currently as the RBI continues its fight against high inflation.

“The repo rate should be marginally above where you want the inflation to be… getting inflation down to 4 percent is not going to happen in the near future, but getting it down to 5.5 percent can happen. So, you just take it there and leave it there and wait for inflation to come down,” he said.

Asia’s third-largest economy, faced with a cost-of-living crisis, is barely above its pre-pandemic level and faces headwinds from elevated commodity prices, a widening current account deficit (CAD), and a likely recession in the West as central banks world-over quicken monetary tightening to combat multi-decade high inflation.

“Some of the (slowdown) is bound to happen, and should happen, otherwise monetary policy might be ineffective. So, the responsibility now should be of fiscal policy to make sure that doesn’t happen because the RBI has no choices left,” Sen added.

How much support the Centre can offer is questionable. Pandemic-related costs, loss of revenue, and cleaning up of the government’s books saw the central government fiscal deficit jump to 9.2 percent of GDP in FY21, before easing to 6.7 percent in FY22.

The Budget has targeted a fiscal deficit of 6.4 percent for FY23. But Finance Minister Nirmala Sitharaman has a tough task on her hands as expenditure on food subsidy has been raised, while earnings have been hit by excise duty cuts and a lower dividend from the RBI.

Investment question

Key to the Indian recovery is investments.

The pandemic has led to the Indian corporate sector garnering a larger share of the economy as the so-called micro, small, and medium enterprises (MSMEs) were battered by the second wave of the pandemic.

“If you look at corporate data, there is fantastic recovery, better than anywhere else in the world. But if you look at it as a whole, the MSMEs are still in very, very bad shape,” Sen said.

According to Sen, the spurt in investments seen in the second half of FY22 is not sustainable as that reflected a rush to finish projects, with the past lockdowns leading to a bunching of investments.

“These were projects that were already on the ground, the finances were tied up, everything was in place. So, there was a huge rush to complete that, which is why you saw a bulge in capex in the second half of the last fiscal year,” Sen said.

“Will the corporates want to invest more now? Do they have the confidence, particularly when you are looking at a global recession staring you in the face by the end of this year and next year?”

Sen’s doubts are reflected in data. While the government has highlighted that private sector project announcements are high, not all of the money is finding its way out of companies’ pockets. According to the RBI’s latest Financial Stability Report, released in late June, companies have been sitting on increasingly large piles of cash.

Let rupee ease

Meanwhile, Sen is not too worried about the rupee, which has plummeted to new lows recently.

According to Sen, the rupee probably needs to continue depreciating as it continues to be overvalued when seen against currencies other than just the US dollar.

As per latest data, the rupee’s real effective exchange rate (REER) against a basket of 40 other currencies stood at 104.18 in June.

A REER of more than 100 is indicative of overvaluation of the currency.

“The thing is, do you actively manage the deprecation, that is, do you force the rupee down or do you just allow it to happen? My opinion is to just let it happen if it happens. Just manage the volatility,” Sen said.

On the CAD likely hitting 3 percent of GDP in FY23, Sen said that didn’t warrant an overreaction given the overall “unusual situation”.

Sen was appointed to head the newly-formed Standing Committee on Economic Statistics in late 2019 to improve the quality of India's official data amidst criticism of political interference.

The RBI currently sees India's GDP growth cooling to 7.2 percent in FY23 from 8.7 percent in FY22. However, economists have lowered their forecasts in recent weeks due to the impact of the Russia-Ukraine war and the tightening of financial conditions by the RBI to lower inflation.

ICICI Bank on Saturday has reported a growth of 49.59 per cent in net profit to Rs 6,904.94 crore for the quarter ending June 30, 2022 (Q1FY23) period, compared to Rs 4,616.02 crore in the corresponding period last year.

The company's profit after tax (PAT), however, declined from Rs 7,018.71 crore recorded in the preceding quarter. Its net interest income (NII) rose 21 per cent year-on-year (y-o-y) to Rs 13,210 crore compared with Rs 10,936 crore in the same quarter last year.

Non-interest income, excluding treasury income, climbed 25 per cent year on year to Rs 4,629 crore from Rs 3,706

crore.
The consolidated PAT increased by 55 per cent y-o-y to Rs 7,385 crore in Q1FY23 from Rs 4,763 crore in Q1FY22.

The retail loan portfolio grew by 24 per cent y-o-y and 5 per cent sequentially, and comprised 53.1 per cent of the total loan portfolio at June 30, 2022.

In December 2020, the bank had expanded its mobile app, iMobile, to iMobile Pay which offers payment and banking services to customers of any bank. There have been 7.3 million activations of iMobile Pay from non-ICICI Bank account holders as of June 30, 2022.

The value of credit card spends in Q1 grew by 13 per cent sequentially and was two times the value of spends in Q1FY22 driven by improvement in discretionary spending, higher activation rate through digital onboarding of customers.

The value of the bank’s merchant acquiring transactions through UPI in Q1FY23 grew by 27 per cent over Q4FY22 and was 2.3 times the value of transactions during the same quarter last year.

Four out of five brokerages, including JP Morgan, Edelweiss Securities, and Emkay Global, expect ICICI Bank’s Q1 net profit to soar between 40 per cent and 47 per cent on a year-on-year (YoY) basis, up to Rs 6,790 crore.

Deposits, meanwhile, were swelling to 17 per cent YoY to Rs 1.08 trillion. Against this backdrop, NII was expected to rise in the range of 18 per cent to 21 per cent YoY, between Rs 12,900 crore and Rs 13,276.4 crore. In Q4FY22, NII of the lender increased by 21 per cent year-on-year to Rs 12,605 crore.

Soki Wu’s food stall, tucked in a food court in a shopping mall in Singapore, is a crowd favorite for its fresh, juicy chicken rice,” a national dish. But customers recently began complaining that his chicken didn’t taste quite as good as it used to.

Wu was forced to switch to frozen chicken after Malaysia banned exports last month of live broiler chickens that are more affordable and better tasting in a bid to offset rising local prices. For Singapore, which sources a third of its poultry from Malaysia, the impact was immediate.

This is unavoidable. Using frozen chickens have affected the taste of the dish, but we have no choice, Wu said.

As inflation surges around the world, politicians are scrambling for ways to keep food affordable as people increasingly protest the soaring cost of living. One knee-jerk response has been food export bans aimed at protecting domestic prices and supplies as a growing number of governments in developing nations try to show a nervous public that their needs will be met.

For business owners, the rising cost of cooking ingredients from oil to chicken has prompted them to raise prices, with people paying 10% to 20% more at Wu’s food stall. For consumers, it has meant paying more for the same or lesser-quality food or curbing certain habits altogether.

In Lebanon, where endemic corruption and political stalemate has crippled the economy, the U.N. World Food Program is increasingly providing people with cash assistance to buy food, particularly after a devastating 2020 port blast that destroyed massive grain silos. Constant power cuts and high fuel prices for generators limit what people can buy because they can’t rely on freezers and refrigerators to store perishables.

Tracy Saliba, a single mother of two and business owner in Beirut, says she used to spend around a quarter of her earnings on food. These days, half her income goes to feeding her family as the currency loses strength amid soaring prices.

Im not buying (groceries) like I used to, Saliba said. Im just getting the necessary items and food, like day by day.

Food prices have risen by nearly 14% this year in emerging markets and by over 7% in advanced economies, according to Capital Economics. In countries where people spend at least a third or more of their incomes on food, any sharp increase in prices can lead to crisis.

Capital Economics forecasts that households in developed markets will spend an extra $7 billion a month on food and beverages this year and much of next year due to inflation.

The pain is being felt unevenly, with 2.3 billion people going severely or moderately hungry last year, according to a global report by the World Food Program and four other U.N. agencies.

Food prices accounted for about 60% of last years increase in inflation in the Middle East and North Africa, with the exception of oil-producing Gulf countries. The situation is particularly dire for Sudan, where inflation is expected to hit 245% this year, and Iran, where prices spiked as much as 300% for chicken, eggs and milk in May, sparking panic and scattered protests.

In Somalia, where 2.7 million people cannot meet their daily food requirements and where children are dying of malnutrition, sugar is a source of energy. In May, a kilogram (2.2 pounds) of sugar cost about the equivalent of 72 cents in Mogadishu, the capital. A month later, it had shot up to $1.28 a kilogram.

In my home, I serve tea (with sugar) three times a day, but from now on, I have to reduce it drastically to only making it when guests arrive, said Asli Abdulkadir, a Somali housewife and mother of four.

People there are bracing for even higher costs after India announced it would cap sugar exports this year. Even if that doesn’t reduce India’s sugar exports compared with previous years, news of the restriction was enough to cause speculation among traders like Ahmed Farah in Mogadishu.

”The cost of sugar is expected to surge since Somalia counts heavily on the white sugar exported from India and a few brown sugars from Brazil, he said.

Food export restrictions aimed at protecting domestic supplies and capping inflation is one reason for the rising cost of food.

Food prices had been steadily climbing worldwide because of drought, supply chain issues, and high energy and fertilizer costs. The U.N. Food and Agriculture Organization says food commodity prices were up 23% last year.

Russias war in Ukraine further sent the price of wheat and cooking oils up, fueling a global food crisis. There was a breakthrough this week to create safe corridors for Black Sea shipments, but Ukrainian ports have been blocked from exporting these key goods for months and it will take time to get them moving again to vulnerable countries worldwide.

There’s concern that the impact of all these factors will lead more countries to resort to food export bans, which are felt globally. When Indonesia blocked the export of palm oil for a month in April, palm oil prices spiked by at least 200%.

Analysts say food export bans are shortsighted because they have a domino effect of driving up prices.

I would say that roughly 80% of the bans we see are ill-advised a kind-of, sort-of gut reaction by certain politicians, said David Laborde, who is credited with creating a food trade policy tracker at the International Food Policy Research Institute.

In the world where you will be the only one to do it, that can make sense,” he said. But in a world where other countries can also do it, actually that’s far from being a good idea.

Laborde said bans are a very selfish policy … because you try to get better by making things worse for others.

The list of food export restrictions Laborde has been tracking since the COVID-19 pandemic is long and changes constantly. Examples of their impact include Kazakhstan’s restrictions on grains and oil on prices in Uzbekistan, Tajikistan, Turkmenistan and Afghanistan; Cameroon’s rice export restriction on Chad; and Tunisia’s fruit and vegetable restrictions on Libya.

In Singapore, 29-year-old Wu is hopeful he can keep the family business running as Singapores government signed off on Indonesia as a new chicken supplier.

Things will get better,” he said. (This) will only make us more resilient.

In a relief to businesses, the Supreme Court on Friday said taxpayers who had missed out on transitional tax benefits when India switched to the Goods and Services Tax (GST) regime, will be able to claim such benefits in September and October this year.

The apex court bench of Justice Abdul Nazeer and JK Maheshwari directed the revenue authorities to facilitate taxpayers who were not able to claim benefits when the country transitioned from an indirect tax system to GST in 2017.

The top court asked the government to facilitate the filing of Tran 1 and Tran 2 forms. The forms were introduced when GST was rolled out so that taxpayers could carry forward the pre-GST-credit into the GST system.

The court said the GST Network portal must be open for the taxpayers from September 1 to October 31st to claim the transitional credit. Tax officials have been given 90 days to verify the veracity of the claims as well as hear the taxpayers.

Plea challenging GST on disability equipment

A plea was filed in the apex court on Friday challenging the GST on disability equipment. The writ petition called ‘Nipun Malhotra versus Union of India’ was filed in 2017.

The counsel of the petitioner said according to an earlier order by the apex court the petitioner had challenged the tax before the GST council but it was not abolished.

The matter will be heard in September.

SC to hear plea regarding ITAT appointments

The Supreme Court will hear a plea concerning the non-appointment of some names cleared by Search-Cum-Selection-Committee(SCSC) to the Income Tax AppellateTribunal(ITAT).

The contempt petition hearing on Friday claimed the Centre had disobeyed the apex court's order for non-consideration of 19 names out of the 41 names recommended by the SCSC in 2019 for the ITAT.

The SCSC led by Justice AM Khanwilkar had proposed 28 candidates on the main list and 13 on the waitlist out of which 16 were selected from the main list and 6 from the waitlist.

The Attorney General said on Friday that some people were not appointed because new materials had surfaced that raised questions about the integrity of the persons that were left out.

The court asked the Centre to submit these new materials before it and posted the matter for July 26.

Since the Covid-19 outbreak in the Arab Gulf countries in March 2020, many in Kerala had anticipated that the state would lose its pole position in remittances. Last week, the Reserve Bank of India's (RBI)'s Fifth Round of Survey on Remittances for 2020-21 put it down in black and white.

Yes, Kerala has been pushed down to the second position in the volume of inward remittances. Of the total, Maharashtra has secured the top position with a share of 35.2 percent. Meanwhile, Kerala could garner only 10.2 percent of the total inward remittances. Additionally, the United States (US) grew as the largest remitter to India with a share of 23.4 percent. The United Arab Emirates (UAE) followed with 18 percent and the United Kingdom with 6.8 percent.

In the previous survey which analysed the inward remittances for 2016-17, Kerala was in first position with a 19 percent share followed by Maharashtra with 16.7 percent. The UAE was the largest remitter with a 26.9 percent share then, followed by the US (22.9 percent) and Saudi Arabia (11.6 percent).

The fresh survey also reveals that the share of remittances from West Asia to India has declined from more than 50 percent in 2016-17 to about 30 percent in 2020-21.

These changes weren’t unexpected. "The West Asian economies were badly hit during the Covid-19 outbreak because they mainly depend on construction, tourism, hospitality, and aviation sectors. All these sectors were locked down, and thousands of low-paid workers were terminated from their jobs," said Rafeek Ravuther, a migrant rights activist.

"More than 1.7 million Keralites had returned to  the state, mainly from West Asia, due to job loss between 2020 and 21. With this situation, how can the remittances grow?," he asked.

A World Bank outlook released in April 2021 said that "heavy GDP losses were observed in all MENA (Middle East and North African) country groups, which includes West Asia."

And while talking about how and why Maharashtra has toppled Kerala from the pole position in inward remittances, and the US has become the largest remitting country, Mini Mohan, a migrant rights expert, said “dynamic changes" are happening in migration.

"While Keralites still prefer West Asia, skilled migrants from other parts of the country, like Maharashtra and Delhi, are migrating to the US and Europe, which brings in more money to the remittance kitty," Mohan said.

A history of remittances 

Since the 1960s, Keralites have been migrating to different parts of the world, especially to West Asia.

The 2018 Kerala Migration Survey by S. Irudaya Rajan and KC Zachariah reveals that one in every fifth household in Kerala has a migrant citizen.

And a study by KP Kannan, a leading economist in Kerala, also reveals that remittances received annually in Kerala are some 13.33 percent of the Net State Domestic Product (NSDP).

However, following the Covid-19 outbreak, remittances to the state, especially from West Asia have been hit badly. A World Bank study on Covid-19 and migrants from Kerala in 2021 had revealed that "around 49 percent of households stated that the amount received had declined after January 2020. On average, overseas remittances fell by $267 monthly among households that reported receiving remittances."

What the dip means?

M Suresh Babu, an IIT-Chennai professor and a development economist, said, "Kerala relies heavily on remittance and any dip in that will affect the state economy because it is already under financial stress."

"There are two types of multipliers in any economy. One is the investment multiplier, and the other one is the consumption multiplier. The remittances go to the consumption multiplier. Or in other words, inward remittances to Kerala are used to purchase things, to pay school or medical bills, repay loans  etc," Suresh Babu said.

"So, when remittances are low, less money is circulated in the market. Less money in the market means the government tax collection share also goes down," he said. Babu added that the state economy is unofficially called LLR (Liquor, Lottery and Remittance) economy and if there is imbalance in any one of them, then it’s going to be a serious issue.

Kerala's public debt is around 2.8 lakh crore and is among the top 10 states with the highest debt burden. A RBI note called Kerala “highly stressed.”

Kerala's committed expenditure rises every year limiting the state’s flexibility to decide on other spending priorities such as developmental schemes and capital outlay.

Committed expenditure of a state typically includes expenditure on the payment of salaries, pensions, and interest. In 2022-23, Kerala has budgeted to spend Rs 94,781 crore on committed expenditure items, which is 71 percent of expected revenue receipts. This comprises spending on salaries (31.3 percent of revenue receipts), pension (20 percent), and interest payments (19.4 percent).

Further, Babu said, “Kerala has reached the third phase of migration where skilled migrants are required. Unfortunately, the current Kerala higher education sector is not capable of delivering job-market oriented talented migrants.

“Eventually, Keralites will be rejected, and skilled workers from states like Maharashtra and others will benefit and they will remit more to their states,”  he concluded.